UKX FTSE 100 Index

MARKET WRAPS

Stocks:

European markets moved higher on Monday as investors assess a fresh batch of earnings, weighing up the odds of a recession.

BP and Shell gained in London as the price of Brent crude jumped. Steam-systems group Spirax-Sarco Engineering, chemical company Croda International and industrial-software firm Aveva were also among the highest risers, while Hargreaves Lansdown, Legal & General, Admiral and Barclays lead financial stocks higher.

BHP lost ground after the miner launched a $5.8 billion takeover bid for Australian copper-and-gold mining company Oz Minerals Ltd., which the latter rejected.

Elsewhere, Siemens Energy fell after it reported a wider net loss in the last quarter due to poor performance by its wind-energy unit. Vestas Wind Systems, another wind-turbine manufacturer, declined.

Stocks to Watch:

ArcelorMittal shares are seen as good value by investors, with buyback action helping the stock defy a volatile environment for steel prices, Citi said.

The Luxembourg-based steel maker has reduced its share count by more than 30% in the last two years, the bank said. With another buyback worth around $1.4 billion planned, further pruning of shares should prompt its share price to rise, Citi said. Shares could rise to about EUR100 in four years, the bank said.

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Playtech could benefit from a wholesale restructuring of the business by either its own management or a third party, Deutsche Bank said. The gambling-technology company is trading 30% below the October 680 pence cash offer from Aristocrat, which failed to pass a shareholder vote for approval, the German bank said.

Deutsche Bank expects a favorable valuation gap between the company's stock and that of other gambling-technology peers. The bank upgraded its rating on the stock to buy from hold, but lowered the target price to 602 pence from 693 pence.

U.S. Markets:

U.S. stock futures pointed to a modestly higher start for Wall Street on Monday as investors debated just how aggressive the Federal Reserve will have to be in its effort to cool historically high inflation.

Stocks closed mostly lower on Friday after the U.S. jobs report for July was much stronger than expected, leaving many investors to believe that while the U.S. isn't now in a recession the Fed won't be pulling up anytime soon on boosting interest rates in its effort to slow the economy. Despite losses Friday, the S&P 500 has risen for three straight weeks.

The U.S. added 528,000 jobs in July, more than double estimates of 258,000, while the unemployment rate fell to 3.5%, better than estimates of 3.6%.

"The massive beat by payrolls makes it hard to argue we are in a recession. And if we are, it's certainly on the more unusual side," said Mike Loewengart, managing director of investment strategy at ETrade.

"It's not just a strong total number that highlights the health of the job market--growth was across the board and not limited to one or two sectors. The market's tepid reaction could be sign that any hopes of a more dovish Fed are likely out the window," Loewengart added.

Next up for investors this week are U.S. inflation data. The consumer price index will be released Wednesday, and economists surveyed by FactSet expect CPI to have risen 8.7% year over year in July, down from 9.1% in June. The year-over-year core reading for July was forecast at 6.1%.

Robert Schein, chief investment officer of Blanke Schein Wealth Management, said the stronger-than-expected jobs number in July "likely sets the stage for yet another hot inflation reading" on consumer prices.

"The stock market is in a holding pattern until Wednesday's consumer price index report, as this data will help to confirm if the Fed's tightening efforts have been successful in starting to tame inflation or if continued Fed tightening is needed," Schein added.

Second-quarter earnings season also continues this week, with reports from Walt Disney (DIS), Coinbase (COIN), Norwegian Cruise Line Holdings (NCLH) and Rivian Automotive (RIVN).

Elsewhere, Senate Democrats on Sunday passed the Inflation Reduction Act of 2022 in a party-line vote. The legislation aims to fund clean energy initiatives, lower heathcare costs and create new jobs, among other things.

Forex:

The euro could stay weak after ratings agency Moody's cut Italy's outlook to 'negative' from 'stable' on Friday following Prime Minister Mario Draghi's resignation, ING said.

The development could prompt the European Central Bank to offer further support through more aggressive re-investment of the Pandemic Emergency Purchase Programme or its new transmission protection instrument, the Dutch bank said.

"None of this will help the beleaguered euro, where the ECB's trade-weighted measure remains glued to the lows of the year," ING said. EUR/CHF will monitor the performance of Italian bonds and could fall towards the lower end of a 0.97-0.98 range while EUR/USD may trade between 1.0100-1.0300, it said.

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The prospect of the Bank of England delivering another large interest rate rise likely limited sterling's declines after the central bank forecast a U.K. recession at its last meeting, ING said.

"Sterling probably has not sold off more since investors do not quite know what to do with a reserve currency that will be backed by rates at 2.25% if we are correct with our BOE call for the September meeting," the Dutch bank said.

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Friday's unexpectedly strong jobs data has caused short-term Treasury yields to rise and markets to price in a higher terminal rate (or peak) for interest rates, which should help the dollar strengthen further, MUFG said.

"There is room for the U.S. dollar to rebound further in the near-term," the bank said. The rate market is now pricing a higher probability of a third 75 basis-point interest-rate rise in September, while ISM surveys and the "blow out" July jobs data have eased recession fears, MUFG said.

Bonds:

German 10-year Bunds recovered after sharp falls on Friday caused yields to jump as unexpectedly strong U.S. jobs data increased expectations for future U.S. interest-rate rises.

Commerzbank said the combination of lower bond supply and Wednesday's U.S. inflation data--which should show a decline--"argues for more balanced moves" in bonds this week.

European government-bond supply should decline further into the summer, with less than EUR9 billion to be issued via auctions in Germany and Austria this week, Commerzbank said.

Energy:

Oil prices ticked higher, supported by economic data from China. China's exports grew at a faster-than-expected pace last month, suggesting the major economy isn't yet feeling the impact of a slowdown in Western economies.

Meanwhile, Russia-related supply risks will put a floor under prices, Capital Economics said. A limited supply increase from OPEC+ means the oil market is likely to remain tight and prices should remain close to $100 a barrel, the economic-research firm said.

Metals:

Metals prices inched up Monday after China reported better-than-expected export figures for July. China's exports and trade surplus both beat expectations with the former 18% higher in dollar terms and the trade surplus hitting $101.3 billion in July.

China's trade figures ease some concerns over falling global demand, weighed down by rising prices and higher interest rates, Stephen Innes, managing partner at SPI Asset Management said. However, Innes added that manufacturing data still remains weak, weighing on commodity prices for now.

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Steel prices are expected to reach their near-term floor, Citi said. Steel-producer margins in China are already negative, while in Europe, spot-based price margins for producers are also starting to turn negative, the bank said.

Negative steel margins usually precede production cuts and a rebalancing of supply, it noted. Steel prices typically recover when cuts to supply accelerate, though the scale of the rebound will depend on the overall recovery in demand for steel, the bank added.

Although European producers are expected to remain highly profitable in the second half of the year due to contracted steel prices and hedged energy costs, they are still seen implementing production cuts, Citi said.

DOW JONES NEWSPLUS

EMEA HEADLINES

World's Biggest Miner Rebuffed on $5.8 Billion Copper Play

ADELAIDE, Australia-Copper miner Oz Minerals Ltd. rejected a takeover approach by BHP Group Ltd., which is seeking to boost its output of a metal needed for electric vehicles, wind turbines and solar farms.

Adelaide-based Oz Minerals said Monday it had received a proposal on Friday from BHP to buy the company for 25 Australian dollars a share. That price, equivalent to about $17 a share, values the company at almost 8.4 billion Australian dollars, or roughly $5.8 billion.

UPS to Buy Italian Healthcare-Logistics Provider Bomi Group

United Parcel Service Inc. agreed to acquire Italy's Bomi Group, as the transportation giant looks to bolster its medical-product-distribution business.

UPS didn't disclose the sale price. The Wall Street Journal previously reported that the deal was worth several hundred million dollars, according to people familiar with the matter.

Veolia to Sell Suez's UK Waste Business to Macquarie for $2.4 Bln

Veolia Environnement SA said Monday that it will sell Suez's U.K. waste business to Macquarie Group Ltd. in a 2.4 billion euros ($2.44 billion) deal.

The French utility said in June it would sell the business to satisfy the U.K.'s antitrust watchdog-the Competition and Markets Authority-which had expressed concerns over the harming of competition in the supply of water- and waste-management services in the country.

How YouTube Keeps Broadcasting Inside Russia's Digital Iron Curtain

Months into its war against Ukraine, Moscow continues to let its own citizens access YouTube, leaving a conspicuous hole in its effort to control what Russians see and hear about the conflict.

The video-streaming service, owned by Alphabet Inc.'s Google, is one of the few places where Russians can view and discuss images of the war from independent outlets. Russia has restricted domestic access to many other big platforms-including news sites and Facebook-since the conflict began.

Iran, U.S. Close In on Nuclear Deal Text but Hurdles Remain

Negotiations between Iran and the U.S. on reviving the 2015 nuclear deal are close to completion, the European Union's senior negotiator at the talks said Sunday evening, but it remained unclear whether Tehran will accept the final deal.

The text of an agreement could be closed in coming hours, said the EU's Enrique Mora, the coordinator of the talks. However, Iran must still decide whether to set aside its demand that the nuclear deal can only be revived if a multiyear United Nations atomic agency probe into its nuclear program is closed.

Israel, Palestinian Militants Agree to Cease Fire After Three Days of Fighting

JERUSALEM-Israel and Gaza militant group Islamic Jihad agreed to a cease-fire late Sunday after three days of fighting that saw more than 40 Palestinians killed and rockets fly deep into Israel's heartland, in the most intense exchange of fire since an 11-day conflict last year.

The cease-fire, brokered by Egypt and the United Nations, came into effect at 11:30 p.m. local time, Israeli, Palestinian and Egyptian officials said.

Explosions Rock Ukraine's Zaporizhzhia Nuclear Power Plant

ZAPORIZHZHIA, Ukraine-Explosions shook Europe's largest nuclear plant over the weekend, prompting fears that the war could unleash a nuclear catastrophe.

Located in the Russian-occupied city of Enerhodar along the Dnipro river, which divides the Russian and Ukrainian forces in the area, the Zaporizhzhia nuclear power plant is now perilously close to the front lines of the fighting.

GLOBAL NEWS

Wall Street Shuffles Bets on Consumer Loans as Economy Slows

The looming prospect of a recession has Wall Street shifting its bets on which debts Americans will make good on and which could lapse.

Some investors are spurning low-rated bonds backed by pools of consumer loans, preferring safer slices of debt that offer more protection when missed payments mount. Others are steering clear of debt tied disproportionately to people with low credit scores, or demanding higher returns to hold it.

Wood-Pellet Exports Boom Amid Ukraine War, Environmental Concerns

The wood-pellet market is on fire.

War has cut off the supply of compressed-wood pellets from Russia, Belarus and Ukraine to the power plants in Western Europe that burn them instead of coal. That has put a premium on pellets from North America, especially the U.S. South.

China's Export Growth Stays Unexpectedly Robust, Offsetting Broader Weakness

HONG KONG-China's export machine remained surprisingly resilient in July following a strong bounceback from the spring's harsh Covid-19 restrictions, defying again predictions of softening global demand for Chinese-made goods.

Chinese shipments to the rest of the world rose to $332.9 billion in July, China's General Administration of Customs said Sunday, an 18% increase compared with a year earlier. The reading beat a median forecast of 15.6% growth among economists polled by The Wall Street Journal. July's year-over-year growth rate represents an acceleration from the 17.9% pace in June.

Pause in the Storm: U.S.-Stock Funds Rose 8.9% in July

Investors needing a morale boost should just read the "July" column of their 401(k) statement. The rest of the 2022 entries are still too depressing.

Stocks rallied in July, a respite after months of declines. The average U.S.-stock mutual fund or exchange-traded fund rose 8.9% in the month, according to Refinitiv Lipper data. But for 2022 so far, through July, the funds are still down 14.4%. (Market indexes are little changed for August so far.)

Investors Brace for More Market Volatility as Earnings Estimates Slump

Corporate-earnings expectations are falling. That means the stock market is again at risk of appearing expensive, even after this year's tumble.

Wall Street often uses the ratio of a company's share price to its earnings as a gauge for whether a stock appears cheap or overpriced. By that metric, the market as a whole had been especially pricey for much of the past two years when easy monetary policy propelled major stock indexes to dozens of new highs.

Fed's Michelle Bowman Says Large Interest-Rate Rises Could Continue

A Federal Reserve official said the U.S. central bank could follow two consecutive 0.75-percentage-point rate rises this summer with a third such increase at its meeting next month.

Fed governor Michelle Bowman said she strongly supported the Fed's 0.75-percentage-point rate increase last month and "similarly-sized increases should be on the table until we see inflation declining in a consistent, meaningful and lasting way."

What CEOs Are Saying: 'My Guess Is That We Are Past Peak Inflation'

Here is what some of the world's corporate leaders said this week about the economy, supply chains, consumer spending and the movies, among other topics.

Starbucks Corp. Interim Chief Executive Howard Schultz:

Explosions Rock Ukraine's Zaporizhzhia Nuclear Power Plant

ZAPORIZHZHIA, Ukraine-Explosions shook Europe's largest nuclear plant over the weekend, prompting fears that the war could unleash a nuclear catastrophe.

Located in the Russian-occupied city of Enerhodar along the Dnipro river, which divides the Russian and Ukrainian forces in the area, the Zaporizhzhia nuclear power plant is now perilously close to the front lines of the fighting.

Write to nihad.ahmed@wsj.com.

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This article is a text version of a Wall Street Journal newsletter published earlier today.

(END) Dow Jones Newswires

August 08, 2022 06:58 ET (10:58 GMT)

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